Interview: Mohammed Khalil Alsayed
In what ways is Bahrain’s new real estate law likely to impact investment inflows?
MOHAMMED KHALIL ALSAYED: Overall growth in the real estate sector was strong in 2017, and the sector continues to be one of the primary contributors to GDP in Bahrain, with a number of sizeable developments under way. Additionally, increased levels of market regulation brought about by the new law should help to ease some of the challenges facing the sector. Over the past few years, the kingdom has seen multiple projects start only to be left incomplete, which has damaged investor trust in the market. Certain provisions of the new regulations will have a positive impact on the pace of investment as investor confidence is gradually built back up.
First, residential developers will now be required to hold in escrow the necessary funds to complete a residential development if they wish to sell off-plan. Buyers that may have been hesitant to enter the market for fear that they would be unable to recoup their investment if a project failed will now be assured that their investment is secure. The pace of development may slow somewhat while developers adjust to the new requirements, but many will benefit from the trust accrued from the enhanced accountability. Second, the law provides for a Real Estate Regulatory Authority, which, if properly implemented, will create greater stability and a more competitive environment.
However, some developers are concerned about these changes. Although more regulation is necessary, players are keen to avoid undue pressure on profits that could inhibit growth. New infrastructure taxes provide needed updates, but will also require significant attention from companies to keep costs manageable. Under current market conditions, how do you assess the risk involved in investing in different segments?
ALSAYED: The market is split between two different trends, with lower-cost residential real estate experiencing high demand, while the higher-end residential and commercial real estate segments are seeing lower demand and even face oversupply in some areas. Despite these opposing trends, the residential, commercial and retail segments of the market are interconnected. Residential demand is highest in areas that have easy access to shops, restaurants, leisure activities, and health and wellness facilities. Locations that impose a long commute to commercial areas see correspondingly lower demand.
Mixed-use developments are often large projects, and therefore face the risk of delays and changing market conditions, but they do have the advantage of being able to create a holistic living environment. This allows demand in each segment to increase because of the close proximity to a community. Mixed-use developments can also contribute to creating destinations that draw widespread interest.
How viable is the public-private partnership (PPP) model for creating affordable housing?
ALSAYED: The PPP model allows the government and the private sector to work together to provide affordable housing with greater efficiency than either party would be able to achieve on their own. Given current trends, I expect that this model will play an increasingly important role in the housing sector across the region. However, PPPs are hindered by the high costs imposed on developers, as well as lengthy licensing and approval processes. If PPPs are to be successful, the government will need to make affordable housing projects feasible by cutting down bureaucratic delays. Looking ahead, developments in technology and e-government will help increase efficiency over time. Involving the private sector in projects ensures that plans take the potential risks and expected profits into consideration; however, if decisions in PPPs are not made as quickly as they would be in more traditional corporate environments, then this lack of timeliness will impact suppliers and contractors, as well as eventual returns and investors.
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